Should I Do It? Chico's FAS Not a Good Fit

Chico's FAS(CHS Quote) was one of a handful of stocks that moved higher during Tuesday's broad market selloff, as the retailer was upgraded from underperform to market perform by the brokerage Friedman Billings Ramsey.

While conceding that "the story is still a work in progress," analyst Adrienne Tennant believes that any disappointing news in the near term has already been priced into the stock, and management is successfully addressing recent inventory growth.

Year-over-year comparisons also are expected to become easier in upcoming months, after Chico's reported five straight months of same-store sales declines.

Chico's shares are up 20.4% year to date, closing Tuesday at $24.90. The company is trading at 21.9 times fiscal 2008 (ending January) expected earnings of $1.14. That said, the stock is currently down nearly 50% from its February 2006 high of $49.40. With that in mind, I'm here to answer readers' questions: Should I do it? Is Chico's once again a fashionable investment, or will the stock not be able to sustain its recent recovery?

The company currently operates 925 casual-wear apparel locations in 47 states under the Chico's, White House/Black Market and Soma brands. Until about a year ago, Chico's FAS was one of the fastest-growing specialty retail chains in the women's apparel market.

For the five years ended fiscal 2006, the company posted 43.7% compound annual earnings growth. During that run, the stock had moved into the high $40s in early 2006 after being in the single digits less than three years before.

To watch David Peltier's video take of this column, click here.